Consider two individuals with endowments of T= 60 hours (per week) of leisure, nonlabour income of Y, and a wage of $7.50 per hour. At this wage, assume that workers are constrained by their employers to work 40 hours per week, or not at all.

a) On carefully labelled diagrams, show the equilibrium for a worker for whom 40 hours is the optimum labour supply and a worker who would like to work 50 hours, but still prefers the 40-hour week to not working at all. Compare the marginal rates of substitution for these individuals at 40 hours per week.

b) The average part-time "moonlighting "wage is $7 per hour, in contrast to $7.50 wage for full-time workers. By modifying the above model for the individual who prefers to work more than 40 hours a week, provide an explanation for this difference in wage rates.